Haw Par Corporation Ltd (SGX: H02) has released its full-year 2018 earnings yesterday.
The group is well-known for its global Tiger Balm brand of ointments and mosquito patches, which have a long history. Aside from the healthcare division, Haw Par also owns strategic stakes in both UOL Group Limited and United Overseas Bank Ltd, as well as commercial and industrial properties for rental income in both Singapore and Malaysia. The company also has a small leisure division which runs Underwater World Pattaya in Thailand.
Here is a summary of their latest earnings.
1. Revenue increased by 6.8% year on year from S$222.8 million to S$237.8 million, lifted by its Healthcare division holds its Tiger Balm products.
2. However, due to rising commodity prices, cost of sales increased by a higher 10.9% year on year from S$83 million to S$92.1 million. Consequently, gross margin was pressured, falling from 63% to 61%. As a result, gross profit rose a smaller 4.3% year on year to S$145.7 million.
3. Other income jumped 65% to S$108 million, and consisted mainly of dividend and interest income. A significant increase in dividends received of S$97.8 million explained most of the increase.
4. Good cost and expense control resulted in a decline in both distribution and marketing expenses (-5.3% year on year) and general and administrative expenses (-17.7% year on year). As a result, profit before tax increased by 39.5% to S$192.3 million.
5. Lower tax expenses resulted in net profit after tax rising by 46% year on year to S$179.1 million.
6. Haw Par’s balance sheet remained rock-solid with S$519.6 million of cash and just S$23.3 million of debt. Operating cash flow remained steady at S$69.5 million, while investing cash flows saw an inflow of S$120.4 million from a combination of dividend income and proceeds from its disposal of investments.
7. As a result of the high cash balance and also to celebrate Haw Par’s 50th anniversary, the group has declared a bumper special dividend of S$0.85 per share in addition to its final dividend of S$0.15 per share. The sum of its final and special dividend amounts to S$1 per share, and if we include its interim dividend of S$0.15 per share, the full-year dividend would be S$1.15 per share. At Haw Par’s last done share price of S$12.39 on 27 February 2019, that represents a trailing dividend yield of 9.3%.
8. Haw Par’s earnings per share came up to S$0.81 on a fully diluted basis. At the last done share price, the group was trading at a trailing price to earnings ratio of 15.3x.
9. In its prospects statement, Haw Par cautioned that Healthcare division’s operating margins may be further pressured should commodity prices remain high. Despite the higher commodity prices, segment margin for Healthcare actually improved from 34% in 2017 to 35.6% in 2018.
The Foolish Bottom Line
Haw Par has delivered a pleasant surprise to shareholders with its declaration of a bumper special dividend, along with an improvement in their core healthcare operations.
The group has demonstrated its ability to generate consistent free cash flow from operations, and their ownership in UOL and UOB has also contributed to very healthy dividend income over the years which has also boosted cash balance. My colleague Sudhan had written about the possibility of Haw Par being able to pay out a higher dividend, and that has indeed come true.
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The Motley Fool Singapore contributor Royston Yang contributed to this article. Royston does not own shares in any of the companies mentioned.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore writer Chin Hui Leong does not own any of the companies mentioned. The Motley Fool Singapore has a recommendation on United Overseas Bank.